UCL Class Action Defense Cases–Kaing v. Pulte Homes: California Federal Court Dismisses UCL/CLRA Class Action Holding Plaintiff Lacked Standing For Failing To Adequately Allege Damages

Class Action Complaint Alleging Homebuilder Inflated Purchase Price of New Homes and Loaned Money to High Foreclosure Risk Purchasers Failed to Adequately Allege Damages so Plaintiff Lacked Standing to Prosecute Class Action Claims California Federal Court Holds

Plaintiff filed a putative class action against various Pulte Home entities arising out of her purchase from Pulte of a newly-constructed single-family residence; the class action complaint alleged that Pulte – which both manufactures homes and provides financing for their purchase – induced plaintiff to obtaining financing through Pulte by “provid[ing] significant financial incentives” to her and others, without disclosing that they would not otherwise qualify for a home loan and were at high risk of foreclosure. Kaing v. Pulte Homes, Inc., ___ F.3d ___ (N.D.Cal. February 18, 2010) [Slip Opn., at 1-3]. According to the allegations underlying the class action complaint, plaintiff was told she would receive a $75,000 reduction from the home’s $575,000 sales price if she financed through Pulte, and that she would not receive this discount if she went to a different lender, _id._, at 3. The class action alleges that “Pulte knew from appraisals on other homes in the subdivision, that the house was worth less than $500,000” but that the Pulte-selected appraiser “inflated” the value to $518,000 – proving it was not worth $575,000 and that the $575,000 sales price plus $75,000 discount were “phony numbers from the start.” _Id._ Plaintiff ultimately paid $518,000 for the home, and financed the purchase with Pulte, but that “she ‘would not have and could not have qualified for her loan’ if she had been working with a ‘lender acting in good faith in an arms-length transaction.’” _Id._ The class action complaint alleged violations of California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA), as well as negligent misrepresentation and breach of an implied covenant of good faith and fair dealing. _Id._, at 5. Defense attorneys moved to dismiss the class action complaint for lack of standing, _id._, at 1. The district court granted the motion.

In ruling on the motion to dismiss, the district court observed that while plaintiff had alleged monthly income of “less than $3500,” she “has not indicated that she has been unable to make her regular payments on the mortgage, nor does she allege that she has been harmed by any of the terms in the loan documents to which she is a party.” Kaing, at 3-4. Rather, the thrust of her class action complaint was that Pulte had failed to “provide Plaintiff with any disclosure that Defendants had sold houses, and would sell houses in the future, to unqualified and high foreclosure-risk buyers” or that “they had sold houses, and planned to sell houses in the future, to investors who would not occupy the houses or to owners who were not financially qualified.” Id., at 4. In essence, the complaint alleged that Pulte’s “questionable loan practices” increased the risk of foreclosure which, in turn, “had a ‘devastating’ impact on the value and desirability of the neighborhoods.” Id. Plaintiff alleges “her home decreased in value by over 50%.” Id., at 5.

Class Action Court Decisions Uncategorized

Class Action Defense Cases–Archdiocese v. Halliburton: Fifth Circuit Affirms Denial Of Class Action Certification In Securities Fraud Class Action Complaint Against Halliburton

Class Action Complaint Against Halliburton Alleging Violations of Securities Laws did not Apply Wrong Legal Standard in Ruling on Class Action Certification Motion and Properly Denied Class Action Treatment because Plaintiff Failed to Establish Causation Seventh Circuit Holds

Plaintiff filed a putative class action against Halliburton and David Lesar (its COO and then CEO during the class period alleging violations of various federal securities laws; specifically, the class action complaint alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as Rule 10(b)-5. The Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co., ___ F.3d ___, 2010 WL 481407, *1 (5th Cir. February 12, 2010). According to the allegations underlying the class action complaint, defendant was liable for securities fraud violations under a “fraud-on-the-market” theory, alleging that false statements had been made concerning “(1) Halliburton’s potential liability in asbestos litigation, (2) Halliburton’s accounting of revenue in its engineering and construction business, and (3) the benefits to Halliburton of a merger with Dresser Industries.” _Id._ Plaintiff moved the district court to certify the litigation as a class action; defense attorneys opposed class action treatment. _Id._ The district court denied the motion, holding that the Rule 23’s requirements for certification of a class action had not been met. _Id._ Specifically, in order to obtain class certification “Plaintiff was required to prove loss causation, _i.e._, that the corrected truth of the former falsehoods actually caused the stock price to fall and resulted in the losses.” _Id._ The district court denied certification because it found that plaintiff had failed to establish the necessary “causal relationship,” _id._ The Fifth Circuit affirmed.

Plaintiff argued on appeal “that the district court applied an erroneous standard for loss causation and required it to prove more than is required under law.” Halliburton, at *1. The Circuit Court disagreed. The Court explained,

In the case of a putative class, a plaintiff may create a rebuttable presumption of reliance under the fraud-on-the-market theory by showing “that (1) the defendant made public material misrepresentations, (2) the defendant’s shares were traded in an efficient market, and (3) the plaintiffs traded shares between the time the misrepresentations were made and the time the truth was revealed.”… A defendant may rebut the presumption “by ‘[a]ny showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at fair market price[.]’”

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Class Action Defense Cases–Yokoyama v. Midland National Life: Ninth Circuit Reverses Denial Of Class Action Certification Holding Individualized Reliance Not Required Under Hawaii Deceptive Practices Act

District Court Erred in Denying Class Action Certification Motion in Class Action Alleging Violations of Hawaii’s Deceptive Practice Act because Hawaii Case Law Establishes that Individualized Reliance need not be Shown so Common Questions Predominated over Individual Questions Ninth Circuit Holds

Plaintiff filed a putative class action against Midland National Life Insurance Company alleging violations of Hawaii’s Deceptive Practices Act; specifically, the class action complaint alleged that the brochures prepared by Midland to market annuities to senior citizens violated Hawaii law. Yokoyama v. Midland National Life Ins. Co., ___ F.3d ___ (9th Cir. February 8, 2010) [Slip Opn., at 2127, 2130]. (Similar class actions had been filed against Midland, but this class action was exempted by the order of the Judicial Panel on Multidistrict Litigation which centralized the other class actions in the Central District of California “, because this action has been narrowly tailored to rely only on Hawaii law.” _Id._, at 2130-31.) Plaintiff moved the district court to certify the litigation as a class action; defense attorneys opposed class action treatment on the ground, _inter alia_, that plaintiff failed to establish the predominance and superiority requirements for a Rule 23(b)(3) class. _Id._, at 2131. “The district court denied class certification, holding that in order to succeed under the Hawaii Act, each plaintiff would have to show subjective, individualized reliance on deceptive practices within the circumstances of each plaintiff’s purchase of the annuity.” _Id._ (citing _Yokoyama v. Midland Nat’l Life Ins. Co._, 243 F.R.D. 400 (D. Haw. 2007)). Plaintiffs appealed the denial of class action certification, _id._ The Ninth Circuit reversed.

The Ninth Circuit began its analysis with the following observation: “The dispositive issue is…whether Hawaii’s Deceptive Practices Act requires a showing of individualized reliance.” Yokoyama, at 2131. The district court concluded that common issues did not predominate because of the individual inquiries inherent in determining reliance: “The district court refused to certify a class in this case because it determined that Hawaii’s consumer protection laws require individualized reliance showings. Believing that the plaintiffs’ claims would ‘require inspection of whether the class members individually relied on Midland’s misstatements,’ the district court concluded that class issues do not predominate over issues affecting individual members.” See id., at 2138. In so ruling, the district court misinterpreted Hawaii law. The Ninth Circuit explained that, under Hawaii law, individual proof of reliance was unnecessary. “The Hawaii Supreme Court has considered the issue of whether the statute requires actual, i.e., subjective reliance. It has said that the dispositive issue is whether the allegedly deceptive practice is “likely to mislead consumers acting reasonably under the circumstances.” [Citation.] “[A]ctual deception need not be shown, the capacity to deceive is sufficient.” [Citation.] This is an objective test, and therefore actual reliance need not be established. Accordingly, there is no reason to look at the circumstances of each individual purchase in this case, because the allegations of the complaint are narrowly focused on allegedly deceptive provisions of Midland’s own marketing brochures, and the fact-finder need only determine whether those brochures were capable of misleading a reasonable consumer.” Id., at 2131. See also, id., at 2136-38. More specifically, the Circuit Court explained, “These plaintiffs base their lawsuit only on what Midland did not disclose to them in its forms. The jury will not have to determine whether each plaintiff subjectively relied on the omissions, but will instead have to determine only whether those omissions were likely to deceive a reasonable person. This does not involve an individualized inquiry.” Id., at 2138-39. The Ninth Circuit held, therefore, that the district court abused its discretion in denying class action treatment because its decision was premised on a legal error. Id.

Certification of Class Actions Class Action Court Decisions Uncategorized

Labor Law Class Action Filings Go Through The Roof — Employment-Related Class Action Claims Maintain Hold On Top Spot Among Weekly Class Action Lawsuits Filed In California State And Federal Courts

To assist California class action defense attorneys anticipate the types of class actions against which they will have to defend in California courts, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the relevant timeframe.

Class Actions In The News Uncategorized

NCAA Class Action Defense Cases–O’Bannon v. NCAA: California Federal Court Denies Motion To Dismiss Antitrust Class Action Holding Student Athlete Claims Adequately Pleaded Sherman Act Claim

Class Action Challenging NCAA Requirement that Student Athletes Allow NCAA to use Likeness, Without Compensation, Adequately Pleaded Antitrust Violations California Federal Court Holds

Two separate class action lawsuits, one by Edward O’Bannon and one by Craig Newsome, were filed against the National Collegiate Athletic Association (NCAA) and the Collegiate Licensing Company (CLC) alleging violations of the Sherman Act, as well as state law claims for unjust enrichment and accounting. O’Bannon v. National Collegiate Athletic Ass’n, ___ F.Supp.2d ___ (N.D.Cal. February 8, 2010) [Slip Opn., at 1]. The class actions were consolidated with other class actions containing similar claims. _Id._, at 4. According to the allegations underlying the class action complaints, plaintiffs competed as student athletes at their respective universities, and were at that time governed by the “rules and regulations of NCAA.” _Id._, at 2. The class actions alleged that the NCAA’s rules and regulations violate the Sherman Act because Form 08-3a, which the NCAA requires student athletes to sign, provides: “You authorize the NCAA [or a third party acting on behalf of the NCAA (e.g., host institution, conference, local organizing committee)] to use your name or picture to generally promote NCAA championships or other NCAA events, activities or programs.” _Id._, at 2-3. Moreover, NCAA Bylaw Article 12.5.1.1 authorizes the NCAA (and certain others) to “use a student-athlete’s name, picture or appearance to support its charitable or educational activities or to support activities considered incidental to the student-athlete’s participation in intercollegiate athletics,” _id._, at 3. This constitutes anticompetitive conduct, the class actions alleged, because the NCAA essentially “requires student athletes to ‘relinquish all rights in perpetuity to the commercial use of their images, including after they graduate and are no longer subject to NCAA regulations.’” _Id._ Plaintiffs alleged that they “[did not] consent to these agreements and that they [did] not receive compensation for the use of their images.” _Id._ Defense attorneys moved to dismiss the class actions; the district court found that the _Newsome_ class action allegations were inadequate to state claims, but that the _O’Bannon_ class action adequately alleged violations of the Sherman Act.

The district court began by analyzing the Sherman Act claims in the O’Bannon class action. See O’Bannon, at 5. The court concluded that each of the elements required to state a claim: specifically, the class action complaint adequately alleged an “agreement among Defendants and their purported co-conspirators,” id., at 6, an “unreasonable restraint of trade” under the “rule of reason,” id., at 7-11, and an impact on interstate commerce, id., at 11. Further, the claim was not time barred because the “continuing violation” doctrine tolled the statute of limitations. Id., at 11-12. O’Bannon also had standing to prosecute the class action claim, id., at 12-13, in part because his complaint alleges that “Defendants’ actions have deprived him of compensation for the use of images of himself from his collegiate career” and that his injury is “traceable to Defendants’ conduct, which includes, but is not limited to, NCAA’s rules and regulations,” id., at 13. The Newsome class action complaint, however, failed to state a claim under the Sherman Act because it failed to adequately allege an unreasonable restraint of trade. See id., at 13-14. Newsome’s fault was in filing a “truncated version of the O’Bannon [class action] complaint” that failed to adequately “plead a relevant market.” Id., at 14.

Class Action Court Decisions Uncategorized

FLSA Class Action Defense Cases–Robinson-Smith v. GEICO: D.C. Circuit Court Holds GEICO Properly Classified Auto Damage Adjusters As Exempt From Overtime Pay Under FLSA

District Court Erred in Granting Employee’s Motion for Summary Judgment in Class Action Alleging Failure to Pay Overtime under Federal Fair Labor Standards Act (FLSA) because Auto Damage Adjusters Exercise Sufficient Discretion and Independent Judgment to Fall Within FLSA’s Administrative Exemption District of Columbia Circuit Holds

Plaintiffs filed a putative class action against their employer, Government Employees Insurance Corporation (GEICO) alleging violations of the federal Fair Labor Standards Act (FLSA); specifically, the class action complaint alleged that defendant misclassified its automobile insurance policy damage adjusters as “exempt” and therefore failed to pay them overtime wages due under the FLSA. Robinson-Smith v. Government Employees Ins. Co., 590 F.3d 886, 887-88 (D.C. Cir. 2010). According to the allegations underlying the class action complaint, “GEICO employs at least three categories of personnel at varying levels of responsibility who may service a given automobile claim: the liability adjuster, the auto damage adjuster and the auto damage appraiser.” Id., at 888. The liability adjuster is at the “high” end of the responsibility scale, and the damage appraiser is at the “low” end of the responsibility scale. Id. “GEICO considers the former exempt as an administrative employee under the FLSA (and thus not entitled to overtime wages) but not the latter.” Id. The issue in this class action concerned the middle group of employees. The parties filed cross-motions for summary judgment on the issue of whether the damage adjusters were administrative employees exempt from overtime pay under the FLSA; the district court used the Department of Labor’s “short test” and “held that GEICO’s auto damage adjusters do not exercise ‘sufficient’ discretion and independent judgment to qualify for the exemption[.]” Id. Accordingly, the district court ruled in favor of plaintiffs, id. GEICO appealed – “arguing that the undisputed fact that the adjusters exercise ‘some discretion’ means that they are exempt from overtime pay as administrative employees under the FLSA” – and the District of Columbia Circuit reversed. Id.

The Circuit Court explained that a GEICO damage adjuster, on average, “handles more than 1,000 claims per year, totaling over $2.5 million.” Robinson-Smith, at 888. We do not here summarize the detail outlined in the court’s opinion concerning the job responsibilities of damage adjusters. Briefly, we note that while GEICO’s damage adjusters utilize software to assist them in estimating repair costs, they are also responsible for determining when to declare a vehicle a total loss. Id., at 888-89. Additionally, the adjuster “makes decisions that are not dictated by the software…, such as interviewing insureds about pre-existing damage, determining whether damage was caused by a covered event and recommending that payment be withheld on a claim if the damage did not result from a covered loss.” Id., at 889. Further, total loss determinations may account for 20-30% of an adjuster’s workload, and “can involve thousands of dollars in additional liability for GEICO.” Id. In fact, about 30% of the total loss claims involve further negotiation between the adjuster and the insured, and “the adjuster generally has full authority to settle a claim within his limits ($10,000 for a Level I adjuster or $15,000 for a Level II adjuster) if he can justify his decision within GEICO guidelines and based on his experience.” Id.

Class Action Court Decisions Employment Law Class Actions Uncategorized

Class Action Defense Arbitration Cases–Omstead v. Dell: Ninth Circuit Court Reinstates Class Action Complaint And Reverses District Court Order Compelling Arbitration Of Class Action Claims On Individual Basis

District Court Erred in Compelling Arbitration on Individual Basis of Class Action Claims because Texas Choice of Law Provision was Unenforceable and Class Action Waiver in Mandatory Arbitration Clause was Unenforceable under California law Ninth Circuit Holds

Plaintiffs filed a putative class action against Dell alleging product liability claims involving laptop computers; specifically, the class action complaint asserted various California state law claims “predicated on the allegation that Dell designed, manufactured, and sold defective notebook computers.” Omstead v. Dell, Inc., ___ F.3d ___ (9th Cir. February 5, 2010) [Slip Opn., at 2101, 2104-05]. According to the allegations underlying the class action complaint, plaintiffs had purchased notebook computers through Dell’s website, _id._, at 2105. As part of those purchases, “plaintiffs were required to accept a written agreement titled ‘U.S. Terms and Conditions of Sale’” (the “Agreement”). _Id._ In pertinent part, the Agreement stated that Texas law governed any dispute among the parties, and that any dispute between the customer and Dell “shall be resolved exclusively and finally by binding arbitration” and that the parties waived any right “to join or consolidate claims by or against other customers, or arbitrate any claim as a representative or class action,” _id._, at 2105-06. Defense attorneys moved to stay the class action and to compel arbitration of the plaintiffs’ individual claims based on an arbitration clause (which contained the class action waiver) in the Agreement. _Id._, at 2105, 2106. The district court granted the defense motion, _id._, at 2106. Plaintiffs, however, refused to comply with the arbitration order, so the district court dismissed the lawsuit based on plaintiffs’ failure to prosecute. _Id._, at 2105, 2106. Plaintiffs appealed the dismissal and the district court’s order compelling arbitration. _Id._, at 2105. The Ninth Circuit reversed.

Reviewing the district court order for an abuse of discretion, the Ninth Circuit first held that plaintiffs’ action should not have been dismissed for failure to prosecute the lawsuit. See Omstead, at 2107 et seq. Plaintiffs did not cause unreasonable delay of the lower court proceedings, id., at 2107-08, and they advised Dell and the district court of their interest in prosecuting the lawsuit as a class action and of their belief that the order compelling arbitration “was fatal to their action” and therefore requested “the district court to enter an order that would permit appellate review of the arbitration issue,” id., at 2108. In essence, the Circuit Court agreed with plaintiffs that the arbitration order placed them in an untenable position – prosecute the claims individually (which plaintiffs insisted that they lacked the financial means to do), or permit the court to dismiss the lawsuit and then pursue an appeal. Id., at 2108-09. The Ninth Circuit therefore exercised its discretion to treat the district court’s order of dismissal under Rule 41(b) as a voluntary dismissal with prejudice under Rule 41(a)(2), and turned to the merits of whether the class action claims should have been ordered to arbitration. Id., at 2109.

Arbitration Class Action Court Decisions Uncategorized

Class Action Defense Cases–Sanchez v. Aerovias De Mexico: Ninth Circuit Court Affirms Dismissal Of Class Action Complaint Holding Class Action Claims Preempted By Airline Deregulation Act

District Court Properly Granted Summary Judgment in Favor of Defense in Class Action Arising from Mexican Airline Collection of Tourism Tax from Exempt Individuals because Airline Deregulation Act Preempted Class Action Claims Ninth Circuit Holds

Plaintiff filed a putative class action in California state court against Mexican airline Aerovias De Mexico alleging state law claims for breach of contract, breach of implied covenant and unjust enrichment claims; specifically, the class action complaint challenged a tourism tax collected by the airline for the Mexican government on the grounds that plaintiff was exempt from the tax. Sanchez v. Aerovias De Mexico, S.A. De C.V., 590 F.3d 1027, 1028 (9th Cir. 2010). According to the allegations underlying the class action, “Mexico levies a tourism tax [of approximately $22 per person]…on airline passengers traveling into Mexico on international flights.” Id. Individuals who are citizens or residents of Mexico are exempt from the tax, as are “diplomats, children under the age of two, and those staying in Mexico for less than twenty-four hours,” id. The class action alleged that plaintiff was exempt from the tax because even though she is “a citizen and resident of California,” she holds dual citizenship and is also a citizen of Mexico. Id. Plaintiff alleged that the airline “breached contractual obligations by improperly collecting the tax, and by failing to disclose that the tourism tax was not due from exempt passengers and that exempt passengers are entitled to a refund”; the class action complaint does not allege that plaintiff advised the airline that she was a Mexican citizen or that she requested a refund of the tax. Id. Defense attorneys removed the class action to federal court under the Class Action Fairness Act (CAFA), and then moved for summary judgment on the grounds that class action’s claims were preempted by the Airline Deregulation Act of 1978 (ADA). Id. The district court agreed, concluding that the allegations underlying the class action “relate[d] to the airline’s ‘price[s], route[s], or service[s],’” within the meaning of the statute, and that “Aeromexico had no contractual obligation to advise passengers about the tax or their right to a refund.” Id. In ruling on the motion, the district did not address plaintiff’s request under Rule 56(f) for a continuance in order to conduct discovery. Id., at 1028-29. Plaintiff appealed, and the Ninth Circuit affirmed.

The Circuit Court explained, [Plaintiff’s] principal argument is that no federal law preempts her state law claims based on breach of contract.” Sanchez, at 1029. Plaintiff’s theory is that “by purchasing a ticket, she and Aeromexico entered into a contract whereby Aeromexico became obliged not to collect a tax that was not due from exempt passengers.” Id. According to plaintiff, the ADA preemption clause does not “prevent the states from enforcing contracts between airlines and their passengers,” and that the tax is not part of the “price, route, or service of an air carrier” within the meaning of the statute because it is “a fee separate and apart from the fare for air transportation that has no economic effect on ‘price.’” Id. The Ninth Circuit disagreed, holding that “a state law or enforcement action is ‘related to’ a ‘price, route, or service’ if it ‘as a connection with or reference to’ a ‘price, route, or service,’” id., at 1030 (citation omitted). Plaintiff’s claim was preempted because “[t]he ticketed price included the tourism tax and other fees and surcharges.” Id. The Ninth Circuit then noted at page 1030, “The real question here is whether Aeromexico made a contractual commitment to advise passengers about the Mexico tourism tax, not to collect it from exempt passengers, and to refund that portion of the price attributable to the tax.” The Court found no evidence that defendant assumed such an obligation, id., at 1030-31. Accordingly, it affirmed the judgment of the district court. Id., at 1031.

Class Action Court Decisions Uncategorized

Surge In Bandwagon Product Defect Class Actions Against Toyota Insufficient To Unseat Employment-Related Class Actions From Top Spot Among Weekly Class Action Lawsuits Filed In California State And Federal Courts

As a resource to California class action defense attorneys, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the relevant timeframe. This report covers the time period from February 5 – 11, 2010, during which time 50 new class action cases were filed in these California state and federal courts.

Class Actions In The News Uncategorized

Class Action Defense Cases–In re Kentucky Grilled Chicken: Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation In Northern District Of Illinois

Judicial Panel Grants Defendant’s Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. — 1407, Over Objection of Plaintiffs in All Four Affected Class Actions, and Transfers Class Actions to Northern District of Illinois for Pretrial Purposes Four class actions –one each in the Northern and Central Districts of California, the Northern District of Illinois and the Eastern District of Michigan – were filed against KFC Corp. and Yum!

Class Action Court Decisions Multidistrict Litigation Uncategorized